VAT rules on financial advice need clarifying
A Treasury select committee report highlights uncertainty around FSA reforms
THE VAT status of advice provided by financial advisors must be clarified, MPs have said.
The call came following the Commons’ Treasury select committee having released its report on the Financial Services Authority’s reform of rules governing financial advice.
The watchdog’s retail distribution review intends to ban commission on advised sales and impose higher professional standards on advisors. However, the MPs said the reforms should be delayed by 12 months to allow advisors more time to comply.
Financial advisors have claimed that banning commissions would force them to charge VAT. According to HM Revenue & Customs rules, professional advice is subject to VAT, while financial services intermediation is exempted from the 20% sales tax.
According to New Model Adviser, Stuart Jefferies of Cerberus Financial Planning said that the HMRC VAT clarification was a “potential bombshell”.
He highlighted: “The current proposals might avoid commission bias but could substitute them with a tax bias in its place. For the majority of advice given today, VAT has not historically been charged because the advice has been hidden around a policy sale.”
The chairman of the Treasury select committee, Andrew Tyrie (pictured), said: “The FSA is right to reform the financial advice market. Given the past problems of mis-selling, we welcome the banning of commission and the introduction of a clear market price for advice.”